Another online scandal has been gathering pace recently. Wikipedia, the free encyclopedia, deleted an article by a Russian researcher, who wrote about the USA’s losses in the Great Depression of 1932-1933. Indignant bloggers began to actively distribute the article on the Russian part of a popular blog service known as Livejournal. The above-mentioned article triggered a heated debate.

The researcher touched upon quite a hot topic in the article – the estimation of the number of victims of the Great Depression in the USA. The material presented in the article apparently made Wikipedia’s moderators delete the piece from the database of the online encyclopedia.

The researcher, Boris Borisov, in his article titled “The American Famine” estimated the victims of the financial crisis in the US at over seven million people. The researcher also directly compared the US events of 1932-1933 with Holodomor, or Famine, in the USSR during 1932-1933.

In the article, Borisov used the official data of the US Census Bureau. Having revised the number of the US population, birth and date rates, immigration and emigration, the researcher came to conclusion that the United States lost over seven million people during the famine of 1932-1933.

“According to the US statistics, the US lost not less than 8 million 553 thousand people from 1931 to 1940. Afterwards, population growth indices change twice instantly exactly between 1930-1931: the indices drop and stay on the same level for ten years. There can no explanation to this phenomenon found in the extensive text of the report by the US Department of Commerce “Statistical Abstract of the United States,” the author wrote.

The researcher points out the movement of population at this point: “A lot more people left the country than arrived during the 1930s – the difference is estimated at 93,309 people, whereas 2.960,782 people arrived in the country a decade earlier. Well, let’s correct the number of total demographic losses in the USA during the 1930s by 3,054 people.”

Analyzing the period of the Great Depression in the USA, the author notes a remarkable similarity with events taking place in the USSR during the 1930s. He even introduced a new term for the USA – defarming – an analogue to dispossession of wealthy farmers in the Soviet Union. “Few people know about five million American farmers (about a million families) whom banks ousted from them lands because of debts.

The US government did not provide them with land, work, social aid, pension – nothing,” the article says. “Every sixth American farmer was affected by famine. People were forced to leave their homes and go to nowhere without any money and any property. They found themselves in the middle of nowhere enveloped in massive unemployment, famine and gangsterism.”

The then state of affairs in the US society can be seen in Peter Jackson’s movie King Kong. The movie starts with scenes of the Great Depression and tells the story of an actress who did not eat for three days and tried to steal an apple from a street vendor. There is food in the city, but many people had no money to buy it in unemployment-paralyzed New York. People starve in the streets against the background of stores selling a variety of foodstuffs.

At the same time, the US government tried to get rid of redundant foodstuffs, which vendors could not sell. Market rules were observed strictly: unsold goods should always be categorized as redundant and they could not be given away to the poor because it could cause damage to businesses. A variety of methods was used to destroy redundant food. They burnt crops, drowned them in the ocean or plowed 10 million hectares of harvesting fields. “About 6.5 million pigs were killed at that time,” the researcher wrote.

The consequences of those policies were predictable, the author of the article wrote. “Here is what a child recollected about those years: “We changed our usual food for something for available. We used to eat bush leaves instead of cabbage. We ate frogs too. My mother and my older sister died during a year.” (Jack Griffin).”

So-called public works introduced by President Roosevelt became a salvation for a huge number of jobless and landless Americans. However, the salvation was only a phantom, Boris Borisov wrote. The works conducted under the aegis of the Public Works Administration and the Civil Works Administration were about building channels, roads or bridges in remote, wild and dangerous territories.

Up to 3.3 million people were involved in those works at a time, whereas the total number of people amounted to 8.5 million, not to count prisoners. “Conditions and death rate at those works are to be studied separately. A member of public works would make $30, and pay $25 of taxes from this amount. So a person could make only $5 for a month of hard work in malarial swamps.”

The conditions, under which people were working for food, could be compared to Stalin’s GULAG camp. “The Public Works Administration (PWA) bore a striking resemblance to GULAG. The PWA was chaired by “American Beria,” the Secretary of Interior Affairs, Harold Ickes, who threw about two million people into camps for the unemployed youth,” Borisov wrote. “Harold LeClair Ickes (1874–1952) later interned USA’s ethnic Japanese in concentration camps. The first stage of the operation took only 72 hours (1941-1942).

“In 1940, the US population was supposed to make up at least 141.856 million people upon the preservation of previous demographic trends. As a matter of fact, the USA had the 131.409-strong population in 1940, of which only 3.054 million can be explained with changes in migration dynamics. Thus, 7.394,000 people simply do not exist as of 1940. There are no official arguments to explain the phenomenon,” Boris Borisov wrote.

It is worthy of note that modern-day Russian patriotic historians reject methods of research based on the general estimation of demographic losses. They believe that demographic processes are not linear and depend on a number of factors. Such historians think that victims of communism estimations made on the base of demographic research works by Stephan Kurt and Richard Pipes, which George Bush and Helen Bonner announced at the opening of Victims of Communism Memorial Foundation in Washington, are false.

On the other hand, these methods are widely used in contemporary science of history. Ukrainian historian Stanislav Kulchitsky used the method to calculate the number of victims of the Ukrainian Holodomor (famine), which was subsequently officially recognized. Parliaments of eleven countries that recognized Holodomor use those numbers in their research works. To crown it all, the US Congress and the European Union also use Kulchitsky’s numbers considering the problem.

The president of the European Central Bank, Jean-Claude Trichet, said potential economic fallout from the turmoil in financial markets, coupled with pressures from rising food and commodity prices, add up to "an accumulation of shocks that is clearly not over."

Mr. Trichet made the comments in an interview in his office atop the bank's 37-story glass-and-metal tower ahead of the 10th anniversary of the central bank. The currency he oversees, once the dream of a few pan-European idealists, is today shared by 15 countries, whose €8.9 trillion economy represents the world's biggest market after the U.S.

Mr. Trichet's comments echo broader worries about a European economic slowdown as oil prices top $130 a barrel. The fallout affects the U.S. and Asia, because Europe is a key source of demand for the global economy as U.S. growth slumps. As European consumers buy less, demand for U.S. imports is slowing.

On Friday, a measure of sentiment among purchasing managers fell, while European inflation hit 3.3% in April. That's well above the ECB's preferred range, which is just below 2%. The relentless surge in oil and food prices is dealing Europe's economy a double blow -- making it harder for the ECB and Bank of England to cut interest rates, and undermining consumer spending on other items.

The ECB's key rate has held steady at 4% since last June, and many economists believe the bank will stay put until at least the end of the year. "Had it not been for this oil-price spike, markets would be betting on ECB rate cuts in the coming months," says Jacques Cailloux, economist at the Royal Bank of Scotland in London. Inflation-adjusted retail sales in March were 1.6% lower than in the same month last year across the euro zone, according to Eurostat, the EU's statistics arm.

Over the past decade, euro-zone inflation has averaged 2.1%, just above the ECB's preferred range. Economists call that a major accomplishment, particularly because growth has averaged around 2% over the period and unemployment fell. Monetary union is "an undeniable success," said Mr. Trichet. "We have a currency, it is credible, it delivers what it must deliver: price stability in the medium term."

In the interview, Mr. Trichet discussed several challenges Europe faces, including inflation and credit-market turmoil. Market upheavals have caused wider spreads in bond yields among euro-zone nations. Some investors have pulled away from countries such as Italy that are perceived to be riskier bets. While Mr. Trichet said shocks are not over, he stressed the bulwark provided by monetary union, noting that the yield spread remains "very modest in comparison with what we had in the past," he said.

He pointed to a recent survey in which forecasters predicted euro-area inflation in five years would be 1.9%. "It's the judgment of the forecasters themselves that we will deliver price stability in the medium term, when the succession of humps that we have to cope with is dissipated," he said. At the moment, "we have a protracted period of high inflation rates. But we will preserve the delivery of price stability in the medium-term."

The idea of European monetary union stretches back to the years after World War II. It took concrete form in the early 1970s, when European leaders linked their currencies in a system that limited fluctuations. The ECB's birth on June 1, 1998, set the stage for a centralized monetary policy for the bloc's nations, then numbering 11. All EU nations -- except for Denmark and Britain, which negotiated the right to opt out -- must join the common currency eventually. Slovakia likely will join in January.

The ECB officially took over monetary policy when the euro itself made its debut at the start of 1999, with an initial value of $1.17. Amid skepticism about its viability, its value deteriorated to 83 cents over the next 22 months. In the past two years, the euro has climbed in tandem with solid euro-zone growth and, until the summer of 2007, a steady campaign of ECB interest-rate rises. Friday afternoon in New York, the euro was changing hands at about $1.57.

The ECB has "presided over the euro becoming, in record time, a global currency on a scale that certainly no one would have guessed," says Willem Buiter, professor at the London School of Economics and a former member of the Bank of England's Monetary Policy Committee.

Ilargi: More brilliant global banking schemes: get central banks to swap treasuries for cancerous mortgage securities. These banks are not stupid. I wonder what sweetens the deals; must be impressive.

Foreign central banks reduced their overall holdings of U.S. debt last week, with a steep decline in Treasury bonds offsetting a rise in agency securities, U.S. Federal Reserve data showed on Thursday.

The Fed said its holdings of U.S. debt kept for overseas central banks slipped $2.89 billion in the week ended May 21, to stand at a total of $2.281 trillion.

The foreign institutions sold $12.32 billion in Treasury debt, leaving the total at $1.340 trillion. This move was countered with purchases of bonds from government-sponsored agencies like Fannie Mae and Freddie Mac, which brought such holdings to a record $941.36 billion.

Overseas central banks, particularly those in Asia, have been huge buyers of U.S. debt in recent years, and own over a quarter of marketable Treasuries.

The European house price boom has all but disappeared with rapidly rising property now the preserve of the East, according to a new report. A study into global house prices by The Economist has shown Singapore and Hong Kong topping its index of house price rises, with year-on-year inflation of 29.8% and 28.2% respectively.

The study of leading nations' property, based on respected national house price reports, has the United States as the worst performing country – with prices falling 13.6% annually and Britain fifth from bottom with prices showing a 1% year-on-year dip.

Despite fears of a wave of slumping property markets in the western world, The Economist found just five countries showing annual falls, two of which were Japan (-0.7%) and Germany (-4.7%) which have been in the doldrums for some time. But the report warned the figures could look worse in the near future.

'This relatively rosy picture may reflect the use of annual, rather than monthly, figures,' it said. 'In particular, the impact of the credit crunch, by restricting the availability of mortgage finance, is having a negative effect on demand in both Europe and America. It is a fairly safe bet that the data will look less reassuring in six months time.'

The picture of a slowing property market supports that painted by the Royal Institution of Chartered Surveyors earlier this year, which called the end of the European boom. Rics report author Michael Ball said: '2007 will probably go down in history as the year that the great European house price boom ended.

'The year started so strongly on a wave of optimism but ended bleakly for housing markets in virtually every country. 'Purchasers could no longer afford to buy at ever-rising interest rates. Housing markets either froze as a result or prices started to slide.' Rics said that in 2007 only Cyprus and Iceland saw house prices outstrip the previous year's performance.

The Economist study showed five countries with annual house price inflation above 10%; Singapore (29.8%); Hong Kong (28.2%); Australia (13.8%); Sweden (11.3% and China (10.7%). Singapore and Hong Kong have both ridden the wave of the Asian boom, with markets buoyed by large global companies increasing their presence in the cities.

Of the major European economies, French property rose by 5.7% year-on-year, while Spanish prices rose by 3.8% and Germany saw falls of 4.7%. The report warned however that while the Spanish figures showed a small increase, the way they were calculated on valuations rather than market prices could be distorting growth upwards.

Spain has seen a slump in its new homes market over the past 12 months, after a decade of substantial building, with housebuilding rising by 187% between 1996 and 2006. Developers have been left with thousands of unsold homes and left some developments unfinished, while resale values have fallen.

Ireland has suffered similar problems to Spain, with its construction boom that saw housebuilding grown 177% between 1996 and 2006 leading to a glut of property. Prices in the Republic of Ireland fell by 8.9% over the past 12 months.

Ilargi: The Hongkong and Shanghai Banking Corporation stages comedy these days: the same guys who are under attack for losing billion of dollars, are in line for hefty premiums. The claim is that the pay-heyday will make it more equal to other banks. And they’re right: they all get paid for losing other people’s money.

HSBC bosses will face fresh calls from the Monaco-based hedge fund Knight Vinke to quit their ill-fated US operation, when Europe's largest bank holds its annual general meeting at London's Barbican Centre on Friday. Knight Vinke's founder, Eric Knight, who will attend the meeting, began his crusade eight months ago against HSBC chief executive Michael Geoghegan and chairman Stephen Green.

Knight Vinke's chief investment officer, Glen Suarez, told The Independent on Sunday that HSBC's 22-strong board "needed to put pressure on the management to consider the unthinkable" and ditch its ailing American division, the performance of which has already cost the bank more than $15bn (£7.5bn) in provision for bad debt since last year.

"They need to shut it down," said Mr Suarez. "The business is so far under the water that they would only be able to sell it for a negative value. We plan to use next Friday's meeting to press our case further." He added: "It took us more than four weeks to put our analysis of HSBC's US household business together.

"Many on the board of HSBC, which counts four chief executive officers among its number, can simply never give the time to fully assess the American business. It's like an evening job for some of them.

Five directors at HSBC could share a £120m jackpot over the next three years in a controversial pay scheme to be debated at a shareholders’ meeting this week. The payout, a mixture of cash and shares, would be awarded in full only if the directors at Britain’s biggest bank hit tough profit performance targets significantly ahead of what City analysts are forecasting.

The highest paid would be Mike Geoghegan, HSBC’s chief executive. His basic salary is £1m, but under the new scheme he could benefit from a bonus up to four times his salary and a long-term incentive plan (LTIP) that could be equivalent to seven times salary — a potential £12m a year.

If he were to succeed it would make him the third-highest-paid FTSE 100 chief executive. Last year Bart Becht, chief of Reckitt Benckiser, was the highest paid with a £22m package. HSBC’s chairman, Stephen Green, who was paid a basic salary of £1.25m last year, is not taking part in the bonus scheme, but will benefit from the LTIP.

Douglas Flint, the finance director, will be on the same remuneration scheme as Geoghegan, as will Sandy Flockhart and Vincent Cheng, who have both just joined the board. Flint’s basic salary was £700,000 last year, while Flockhart and Cheng are on about £500,000 each. HSBC’s sixth executive director, Stuart Gulliver, head of global banking and markets, will be on a different performance package. He is already the bank’s highest-paid executive, earning up to £10m.

The new pay deal is designed to put HSBC, which is ranked as one of the world’s top five banks, on more of a par with its international peers. Britain accounts for only a small percentage of earnings for HSBC, which competes against banks such as Citigroup, Bank of America and Bank of China.

The government faces another six months of economic pain with slower growth but limited scope for further cuts to interest rates, the International Monetary Fund warned last night. In its latest assessment of the UK economy, the Washington-based IMF predicted the UK economy will come to a near-standstill by the end of this year before showing some recovery in 2009.

The IMF believes interest rates cannot be cut from their current 5% unless a tight hold is kept on pay, taxes rise more than expected or the credit crunch curbs domestic demand. It urged the Bank of England to be ready to raise rates if wage rises put pressure on inflation. The IMF made a central projection for GDP growth of 1.75% in 2008 and 2009, below the Treasury's own predictions.

In his March budget, the chancellor, Alistair Darling, predicted growth between 1.75% and 2.25% this year and between 2.25% and 2.5% for 2009. Although those government forecasts already represent a downgrade from Darling's original view last autumn, most City economists fear they are still too high. The fund does offer some relief to Darling when it says: "The 2008 budget judgement was appropriate as was the commitment to fiscal tightening over the next few years."

While it expects growth to fall to 1% in the fourth quarter of 2008, it expects a recovery through 2009 and for growth to reach 2.5% by the end of the year. This is still below the 3% recorded in 2007. Its forecasts for 2008 and 2009 are an improvement on the latest prediction in April, when it expected growth of 1.6% for each year.

The IMF noted that its latest forecasts took account of the special liquidity scheme put in place by the Treasury to try to ease funding pressures on banks, and the banks' own capital raising initiatives. "Underlying these forecasts is the view that risks of a credit squeeze are being less threatening following various actions, including the introduction of the special liquidity scheme and capital raising initiatives by banks, but that conditions nevertheless remain tight as previous strains persist," the IMF said.

It agreed with the Bank of England's assessment that the CPI measure of inflation would remain "well above target" as result of rising commodity prices and the depreciation of sterling. "The broader economic challenges posed by this outlook are reflected most immediately in monetary policy dilemmas - where risks to the credibility of the inflation targeting regime from sustained overshooting of the inflation target have to be weighed against risks to activity from financial sector and other shocks," the IMF said.

Ilargi: Why don’t we join the New York Times in their tearful sympathy with 30-year old Hamptonites sobbing over their million-dollar severance packages? That’s where the real pain is, right? That’s the story a true journalist needs to cover. As long as these genius reporters keep their eyes steady on the ball, our problems should be history soon.

The mind wraps itself around losing a job, one of life’s great traumas, in jagged and swerving fits. When the call comes in, when rumor turns to reality, when it’s not the broker in the next cubicle but you who is presented with a stack of severance papers, the psyche takes over.

It goes numb. It goes into survival mode. Fear quickly turns into anger. For some, there may be relief in saying goodbye to what therapists call the “psychological terror” that has haunted the corridors of troubled financial institutions since last summer. But what follows — the unknown — may be no less frightening.

Since August, banks worldwide have announced plans to eliminate as many as 65,000 jobs. Many losing their jobs now have lived through other crises on Wall Street — the 1987 market crash, the widespread layoffs of the early 1990s and the financial upheaval of 1998.

But investment bankers, recruiters and psychologists say the current economic downturn, the cascade of layoffs and the steady beat of grim financial news have exacted an especially daunting psychic price. “These are people’s lives,” said an investment banker in his 30s who was laid off in November from his job at a Bank of America office in New York. “It’s not head count. We’re not cattle.”

Like other employees interviewed for this article, the Bank of American employee spoke on the condition of anonymity. He and several others who were laid off said that under the terms of their severance packages, they are not permitted to sue the company or to speak out negatively about it.

In an e-mail message, Bank of America said: “Job reductions are sometimes a necessary course of business, but they are never easy, whether you are receiving the message or delivering it. We always try to be as respectful as possible.” Even for some of those who survive a job cut, the emotional landscape can change. “

It’s like I woke up and I’m in a different country,” said a person who has worked for Merrill Lynch for more than two decades and has weathered a recent round of layoffs there. He described widespread anger, mistrust and angst at Merrill, both among those leaving and those staying. “People are reeling,” he said. “The culture has turned. It is a nasty culture.”

Merrill Lynch laid off 20,000 people in the wake of the Sept. 11 terrorist attacks, and while many Wall Street workers say the deaths of co-workers were a shattering experience, they draw a distinction between banks’ actions then and now. Merrill has laid off 4,000 employees this year. In this round, “these were self-inflicted wounds,” the Merrill employee said.

The Merrill banker spoke on the condition of anonymity, saying the company does not permit employees to speak to reporters without permission, and he said he feared retribution if he sought that permission or identified himself.

Hawai'i's mortgage lenders saw a nearly 50 percent drop in business in the first three months of the year as home sales slowed and lending rules were tightened. The total value of residential mortgages, commercial real estate loans and home refinancings statewide dropped to $5.2 billion during the three months ending March 31, from $10.4 billion in the year-earlier period, according to figures compiled by Title Guaranty.

The number of new loans fell 32.5 percent during the quarter to 13,390 from first quarter 2007's 19,825. The decline in business will cut into commissions for brokers working at the more than 60 mortgage companies with offices in Hawai'i. Brokers are typically paid commissions based on the dollar amount of loans they bring in. The mortgage lending slump provides more evidence that the real estate market is cooling. [..]

Until recently, Countrywide had been the state's largest mortgage lender. In 2006, the company and one of its affiliated companies issued more than $3.2 billion in new residential and commercial loans, according to figures compiled by Title Guaranty.Last year, Countrywide's local loan volume dropped by half to about $1.6 billion. The company has since been supplanted by Wells Fargo Home Mortgage Inc. as Hawai'i's No. 1 mortgage lender.

Ilargi: Predictably, the decrease in oil supply, and the resulting price hikes, lead to a vast increase in stupid analyses by "experts". Without the US invasion of Iraq oil would be $40 a barrel. Or so claims this economist. Of course he doesn’t know that, he has no proof of it, but that doesn’t matter.

The invasion of Iraq by Britain and the US has trebled the price of oil, according to a leading expert, costing the world a staggering $6 trillion in higher energy prices alone.

The oil economist Dr Mamdouh Salameh, who advises both the World Bank and the UN Industrial Development Organisation (Unido), told The Independent on Sunday that the price of oil would now be no more than $40 a barrel, less than a third of the record $135 a barrel reached last week, if it had not been for the Iraq war.

He spoke after oil prices set a new record on 13 consecutive days over the past two weeks. They have now multiplied sixfold since 2002, compared with the fourfold increase of the 1973 and 1974 "oil shock" that ended the world's long postwar boom.

Goldman Sachs predicted last week that the price could rise to an unprecedented $200 a barrel over the next year, and the world is coming to terms with the idea that the age of cheap oil has ended, with far-reaching repercussions on their activities.

Dr Salameh, director of the UK-based Oil Market Consultancy Service, and an authority on Iraq's oil, said it is the only one of the world's biggest producing countries with enough reserves substantially to increase its flow.

Production in eight of the others – the US, Canada, Iran, Indonesia, Russia, Britain, Norway and Mexico – has peaked, he says, while China and Saudia Arabia, the remaining two, are nearing the point at of decline. Before the war, Saddam Hussein's regime pumped some 3.5 million barrels of oil a day, but this had now fallen to just two million barrels.

Dr Salameh told the all-party parliamentary group on peak oil last month that Iraq had offered the United States a deal, three years before the war, that would have opened up 10 new giant oil fields on "generous" terms in return for the lifting of sanctions. "This would certainly have prevented the steep rise of the oil price," he said. "But the US had a different idea. It planned to occupy Iraq and annex its oil."

Ilargi: One might say that the mortagae industry does a complete U-turn in its predictions, in the space of 6 months. Questions: how could they have been so wrong, and why would we trust them to be right this time?

Given that they are the cheerleaders here, expect the real numbers to be much worse still at the end of the year. The Chartered Surveyors predicted this week that UK home sales will fall by 40% in 2008.

The Council of Mortgage lenders said this week that it expected a 35% drop in property sales and 7% fall in house prices this year. The CML, which represents Britain's banks and building societies, replaced its previous forecast that prices would rise 1% in 2008, made in October last year.

It had also suggested that the number of property transactions would remain roughly the same in 2008 as 2007, at about 1m. It has now admitted that transactions will drop to around 770,000. Howard Archer, chief UK economist at analysts Global Insight, said the bad news on the housing market is pretty relentless at the moment, 'With the low level of mortgage activity being a consequence of a damaging mix of stretched buyer affordability and very tight lending conditions.'

Monthly figures showed mortgage lending dropping 8% in April, to £25.3bn, compared to a year ago, although due to the early Easter it rose 5% compared to March, over a period when it traditionally falls. Combining the March and April figures to smooth out the effect of the Easter holiday showed mortgage lending down 16% on the same months in 2007.

The slump in mortgage lending and property sales has come as banks and building societies dramatically slashed mortgage lending in the wake of the global financial squeeze. Mortgage lenders have raised deposits needed for the best mortgages, cut back on loans, and hiked arrangement fees since the turn of the year. These moves come despite the bank rate being cut to 5%, with three 0.25% reductions since December 2007, and the Bank of England releasing more funds to lenders.

CML director general Michael Coogan said: 'Over the next few months, lending volumes will get worse before they get better. 'The market is still very uncertain, but lenders are working hard to ensure that borrowers coming off fixed rates remain on track, that arrears and repossessions are minimised, and that pricing is as attractive as they can make it in a market where they must manage the demand for lending with caution.'

The CML predicted the bank rate would end the year at 4.75%, representing one further cut in borrowing costs. Gross lending will be around 21% lower than last year at £285bn.

Banks have been put on the 'at risk' list by Britain's official supervisor of company accounts. In the wake of the credit crunch their annual reports will come under special scrutiny by the Financial Report Review Panel during the financial year 2008-09. This is stark confirmation of official concern about the health of UK banks in the wake of the near collapse of Northern Rock.

For the fourth successive year, retailers' accounts will come under the spotlight, but telecoms, media and utility businesses - all of which were singled out for special attention in 2007-08 - will have been removed from the list. Along with banking, Britain's commercial property firms and housebuilders - both vulnerable to the current economic turbulence - will join the list.

And the accounts of travel and leisure businesses will be given special attention, as they were last year. The Financial Reporting Review Panel is the company accounts supervisor that forms part of the Financial Reporting Council, which oversees all aspects of accounting, audit and corporate governance. Each year, the panel draws up a list of priority business sectors whose financial reports will attract special scrutiny.

This list is compiled in consultation with the Bank of England's Monetary Policy Committee and the Financial Services Authority. A panel spokesman said: 'We will pay particular attention to disclosures relating to financing arrangements and risks and uncertainties in the light of credit market conditions at the time of approval of financial statements.'

Last August, Wall Street firm Morgan Stanley and one of its senior traders agreed to pay $6.1 million in fines and restitution to settle allegations that the investment bank overcharged brokerage customers on 2,800 purchases of $59 million of bonds.

Regulators investigating the case had a crucial inside source: Dana de Windt, a broker at the aquamarine, glass Morgan Stanley branch nestled among back-pain and varicose-vein-removal clinics in Stuart, a small city on Florida's east coast. For four years, the 60-year-old Mr. de Windt has been fighting a lonely war against his own firm.

Saying he was convinced that Morgan Stanley cheated clients, Mr. de Windt complained to regulators, helped recruit customers to file damage claims and repeatedly tried to confront his bosses with questions tucked inside a thick, three-ring binder. "These firms are such big bullies that they feel if they stonewall, you're eventually going to go away," he says. Morgan Stanley declined to comment on Mr. de Windt's version of events.

What makes Mr. de Windt an unusual adversary is that he fought so openly and aggressively against Morgan Stanley even while continuing to work there. His production plunged, and he says his boss in the Stuart office told him to get over it. Yet the firm tolerated Mr. de Windt's rebellion. A Morgan Stanley spokesman says officials were aware of the broker's contacts with regulators but didn't retaliate. Senior Morgan Stanley executives also responded to his concerns, the spokesman adds.

"It definitely took a toll," says Mr. de Windt's son, Cullen, a tennis pro at a Palm City, Fla., country club. "It's tough to do business and really be fired up when you are fighting the big boys to make sure no one gets taken." Part of Mr. de Windt's fury was personal. He joined Morgan Stanley in 1992 after working at E.F. Hutton & Co. and Prudential Securities.

In 2001, Morgan Stanley sold customers in Florida and elsewhere $59 million in bonds issued by Lumbermens Mutual Casualty Co., a property and casualty unit of Kemper Insurance Cos. But the bonds lost their investment-grade rating in 2002 because of deterioration in the insurer's finances. The bonds eventually plunged 90% or more in value. And Mr. de Windt discovered that his 87-year-old father owned $65,000 of the battered securities.

Other brokers at Morgan Stanley also started raising questions. Michael Blankenship, another broker in the Stuart office, had bought about $700,000 of the bonds for seven or eight clients. Then he noticed that the bonds reflected a market value about 20% lower than the purchase price once they were put in client accounts. Mr. Blankenship was told the prices were in error, according to documents filed in an arbitration case.

In a 2003 meeting about the bonds, according to people familiar with the meeting, Mr. Blankenship tangled with a Morgan Stanley lawyer over the phone. Asked by the lawyer what Mr. Blankenship normally did when an investment fell in price, the broker heatedly replied that there was "nothing normal" about the Kemper bonds, which had quickly "turned to dust," the same people said.

Morgan Stanley fired Mr. Blankenship ten days later, saying he had improperly covered a customer's losses after a trading mix-up. Mr. Blankenship later argued he was fired in retaliation for his complaints about the bond losses.

Bank of Korea Governor Lee Seong Tae said central bankers around the world are facing more "uncertainty" that makes policy making increasingly difficult. "The question of how to cope with uncertainty is a big challenge for central bankers and academic theorists," Lee said in a prepared speech to be delivered at a conference at the bank tomorrow in Seoul.

Asian policy makers are battling to balance fallout from the global financial crunch and record prices for food and fuel that have stoked inflation across the region. The Bank of Korea on May 8 kept interest rates unchanged at 5 percent, the highest in almost seven years, saying rising commodity prices and a weakening currency are pushing up inflation.

Crude oil surged to a record $135.09 a barrel last week amid speculation rising demand, led by China and India, may outstrip supply increases. Prices of grains including rice and wheat also surged to unprecedented levels in 2008. South Korea is the world's fifth-largest importer of crude oil.

"Despite the progress in macroeconomic modeling, developments in economic conditions, especially in the highly integrated global environment, still pose difficulties for central bankers' policy making," Lee said. The South Korean economy is "subject to the highly uncertain global economic situation," he added.

Rising food and energy costs pushed up South Korea's inflation to a four-year high of 4.1 percent in April, exceeding the central bank's target for the sixth straight month. Singapore's inflation accelerated in April to the fastest pace in 26 years, while consumer prices in China rose 8.5 percent in April, close to the fastest pace since 1996.

Chinese authorities are warning that nearly 70 dams weakened by the force of a deadly earthquake are in danger of collapsing, while weather forecasters have issued heavy rain warnings for devastated areas of Sichuan province.

The Water Resources Ministry issued a statement Sunday, warning that 69 dams in central Sichuan province are in danger of bursting. Earlier in the day, the State Meteorological Bureau said heavy rains are on the way, with torrential downfall predicted for tonight and Monday.

The rain could trigger mudslides and hamper work to construct shelters for the estimated five million people who lost their homes in Sichuan province in southwestern China.

As a seamstress, Abida Dulalmia makes $1.25 a day embroidering cartoon characters on Disney T-shirts and stitching pockets on jeans for Target. In this jumbled, hazy metropolis, her salary was once coveted. Now it hardly seems enough. With inflation starting to climb into the double digits in Bangladesh and food prices soaring around the world, Dulalmia spends as much as 80 percent of what she makes solely to put food on the dinner table.

"We work really hard," the 25-year-old mother of two said on a recent day, wiping perspiration from her daughter's forehead in the muggy heat of their airless, one-room home. "Why can't we afford to eat?" Frustrations over inflation have become increasingly common here, particularly among garment workers such as Dulalmia who, while never well off, had at least managed to feed themselves. Many now fear, however, that those frustrations could ultimately undermine the stability of the entire country, one of the world's poorest.

Last month, about 20,000 garment workers defied a government ban on demonstrations to demand higher wages and protest skyrocketing food prices, especially on such staples as rice, which have doubled in price since last year. Some of the workers, mostly women, hurled rocks and bricks at police and vandalized factories in what the local media dubbed the start of the "Rice Revolution."

Troops from the Bangladesh Rifles, a paramilitary force that normally patrols the country's borders, now operate and guard the crowded government-subsidized rice shops. Dressed in fatigues, they send the stern message that the government wants to ensure stability. Bangladesh is among at least 33 countries, many with shaky governments and destitute populations, that are at risk of serious political unrest if food prices keep rising, according to a recent World Bank study.

In some countries, the consequences of the food crisis are already playing out. Haiti's prime minister, for example, was forced to step down last month after riots in Port-au-Prince. In this country, the crisis is compounded by natural disasters that have destroyed wide swaths of farmland. Many Bangladeshis have migrated from rural areas to the capital as "climate refugees," driven out by floods and cyclones that some scientists believe have intensified because of rising global temperatures.

Now, in the relative safety of Dhaka, illiterate, often unskilled laborers are being hit by economic calamity as high inflation and surging food prices make their lives more difficult. Although poverty had started to slowly recede over the past decade in this nation of 150 million, there are renewed fears that inflation could undo its decades of progress and once again make it the "basket case" of the world, as it was once dubbed by U.S. Secretary of State Henry Kissinger.

"It was hopeful in Bangladesh. Positive changes were actually happening," said Ayesha Khanam, president of the Bangladesh Women's Council, a civil society group. "But if the price hikes keep going on, I am honestly scared. When you combine both problems -- climate change and the food prices -- well, it's very serious. There could be grave political and human costs."

The sowing season of cash crops is badly affected in various part of the Sindh owing to the unavailability of required water, official sources told Daily Times. Sources in the Sindh Agriculture Department told that the province is facing water shortage of 30,000 cusecs to 35,000 cusecs per day causing a serious halt in the sowing activities of Kharif crops.

The dams, that supply water to Sindh, have witnessed water at dead level for two or three times as the water is not coming through melting of glaciers. The sowing of rice crops is affected badly as it remained stranded between 15 to 20 percent till the third week of May. Normally it is recorded at 70 to 75 percent in the same period of Kharif season in the province.

Officials told that the harvesting of rice could delay if the water condition remains the same in the dams and the target seems to be unattainable in the next Kharif season. Besides rice, cotton crop is also affected in various part of the Sindh. They hoped that the situation of water supply becomes smooth, as the rainfall season is likely to begin as per predication of Met Department.

The Sindh Planning and Development Department has revised crops estimates of the previous year. It allocates 578,000 hectare land for rice crops and earmarks crop target of 1.776 million tonnes. The department allocates 630,000 hectare land for cotton crop and earmarks three million bales production target. Also, it allocates 23,0000 hectare land for sugarcane and estimates 13.409 million tonne its production.

The province did not attained the production target of cotton and rice in the last Kharif season as they were produced 2.5 million bales and 1.776 million tones as against the estimated target of three million bales and 1.8 million tones, respectively. However, the crops of sugarcane have witnessed massive growth and stood at 14.278 million tonnes in last Kharif season as against its estimated target of 13.2 million tonnes.

Ilargi: We all tell ourselves something needs to be done about people starving. We all feel good about our noble goals on the issue. But we all lie to ourselves. We live in a world where other people’s hunger and desperation is an opportunity, a surefire way to make a smashing profit. It’s all solidly embedded in our economic system. Today it’s food and hunger, tomorrow, water and thirst. More profits. What have you done lately to change that? Still feel so good?

It's the hottest commodity that nobody cared about. Until now. In the midst of a global food crisis, governments and investors are waking up to fertilizer and its soaring prices. Financial Post reporter Sean Silcoff attended this week's International Fertilizer Industry Association (IFA) conference in Vienna, where the debate rages: Are fertilizer producers the solution to the world's food crisis or part of the problem?

The Orangery at Schoenbrunn is a vast hall built at the height of the Hapsburg empire. Designed to house citrus trees in winter at this Baroque palace southwest of Vienna, the hall was often used for imperial celebrations. Mozart performed here. On this rainy Sunday in May, the guests of honour are some of the most powerful people in the fertilizer industry.

Their business might lack elegance and grace, but tonight they belong in this hall of emperors. Two trumpeters in green robes welcome 400 guests. Inside the hall, an eight-piece orchestra performs, followed by a Mozart impersonator. Bill Doyle, chief executive of Potash Corp. of Saskatchewan Inc., the world's largest fertilizer producer, is standing by the back of the stage. "You know who these are?" he asks, as he surveys the room, beaming. "These are our customers."

The guests may not be as happy as Mr. Doyle. They buy potash that will be used by hundreds of millions of farmers in Asia, Latin America and Oceania from Canpotex International, which is owned by and sells the fertilizer mined by Saskatoon-based Potash and two other firms from vast deposits in Saskatchewan.

For 15 years, potash customers grew accustomed to flat prices. Then, in late 2006, prices began to skyrocket. In the past year, the price of potash has risen by up to 300% in some markets (now averaging $600 a tonne, according to analysts). Prices of nitrogen and phosphate fertilizers, which Potash Corp. also makes, have also jumped.

The impact on producers has been explosive. Last year, Potash Corp.'s profit rose 72%, to US$1.1-billion, or US$3.40 per share. This year it will triple. Next year, it should be higher, for a sixth-straight record year. In April, Potash Corp. briefly became Canada's most valuable firm. Some think its stock price, now around $200, could double, giving it a market value of more than $100-billion.

Stock market values of other producers have also soared. "For the last 35 years, nobody noticed" the fertilizer business, says Steven Dechka, the CEO of Canpotex and the host of tonight's event. "I've waited my whole career for this." Fertilizer is this year's "it" commodity. At this week's International Fertilizer Industry Association (IFA) conference in Vienna, everyone had the same question: Where are prices going?

Demand for fertilizers jumped by 4.5% in 2006 and 6% last year -- up from 2% in the past -- pushing producers to the brink of capacity. Some, such as Potash Corp., are rationing supply among buyers. The unprecedented growth in global demand is the result of rapid economic expansion, led by China and India. As millions of people leave poverty every year, they eat more meat and protein.

That has led to a surge in demand -- and prices -- for grains to feed livestock. Ethanol has also sucked up corn stockpiles in the United States. With the prospect of earning record prices for corn, wheat and soybeans, farmers globally are trying to increase output. To do that, they need more fertilizer.

But high prices and record profits have exposed serious tensions. Indian leaders this week accused suppliers of acting in tandem to drive prices abnormally high. Rising fertilizer prices, they allege, will imperil global food security. It is a devastating charge. Fertilizer, after all, is a commodity like no other. Without it, there wouldn't be enough food to feed 40% of the world's people.

"You can wait for steel, you can wait for aluminum, you can wait for power," says Dr. U. S. Awasthi, managing director of Indian Farmers Fertilizer Co-operative, who alleged "cartelization" by suppliers this week. "But can you wait not to have your meal?"The charge holds little substance for producers. India subsidizes the price of fertilizer, and the size of that subsidy has ballooned to a forecasted US$22.5-billion for this year, approaching the size of India's defence budget.

Indian leaders, Mr. Doyle says, "have an agenda, which is they want low fertilizer prices." Besides, the market is responding: A rash of new investment is pouring into the industry. New plants and mines are under development. Existing producers, including Potash Corp., are adding capacity. But the new plants cost billions apiece and take three to five years to build. That means high prices are here to stay.

"For the next three to five years, the situation we have today is probably the normal situation," says Michel Prud'homme, executive secretary of production and trade with the IFA. As he's minting a fortune, Mr. Doyle has to look contrite with buyers and ecstatic for shareholders. At an investor presentation in Toronto last month, he said demand pressure as a result of ethanol production is "like the cherry on top of a beautiful chocolate sundae."

The high-stakes fertilizer issue is bound to intensify. For 30 years, global agriculture was marked by low prices, weak investment and state meddling. The spike in demand has delivered a shock to an ill-prepared system. Grain inventories have been shrinking steadily the past eight years and stand at about 50 days of supply.

High grain prices threaten the world's poor, who spend much of their incomes on food. Riots have broken out in Haiti, Ethiopia and elsewhere. The UN Food and Agriculture Organization says 36 nations are at risk of instability. The World Bank estimates a further 100 million people will descend into poverty. Some countries have cut rice exports -- pushing up prices of the staple grain -- to ensure ample supply at home. And there is the question of how the world will feed 2 billion more people by 2030.

The answers lie with an industry that, until recently, has escaped much notice by politicians and investors alike. That is quickly changing. Every CEO has a sales pitch; Bill Doyle has a sermon. "Do we do something important? Absolutely," he says. "This is one of the most important businesses on the face of the Earth."

Sitting in his luxury suite at the Vienna Grand Hotel, with his charismatic smile and GQ looks, he's an unlikely holy man. "You can't have a peaceful world on the basis of empty stomachs," he says. "Agriculture is the noble science."

Mr. Doyle, 58, found his calling during a 14-month voyage whiloe in his early twenties. After earning a double-major in music and government from Georgetown University, the Chicago native travelled by motorcycle throughout the Middle East and Africa. "What I saw was people growing things. They had a simple approach to life, their fingers in the dirt, harvesting, which I still think is the greatest human feat of all."

He came back to seek a job in agriculture, and started as a sales trainee with the forerunner to Mosaic Co., the world's second-largest fertilizer firm. Mr. Doyle worked his way up to head of global sales. He joined Potash Corp. in 1987 as head of sales, and became CEO in 1999. Even at current fertilizer prices, farmers are still profiting, Mr. Doyle says. An Indian wheat farmer gets a US$8.60 return for every US$1 spent on fertilizer and palm-oil growers in Malaysia earn US$7 for every US$1 invested, he says.

But fertilizer demand also closely tracks crop prices. The pattern always repeats. One year there would be a drought in a crop-growing region. Prices would spike, farmers would plant more, and fertilizer demand and prices would rise. Then, prices would fall because of oversupply. The cure for high prices, the saying went, is high prices.

This time it's different. "This is the first demand cycle we've been in," Mr. Doyle says, as opposed to a cycle driven by the amount of supply. "The food problem now is going to take years to correct." For 20 years, "we've been saying alarm bells should be going off in every major global capital and politicians should be paying attention to it, and they ignored us."

13 comments:

I just wanted to say thanks for all your efforts. I think this is the best financial blog on the net and I read a few.

I also wanted to say that your reporting has helped me increase my financial understanding and protect my investments and help close members of my community. So thanks--your work is appreciated.

Things are messy and there seems to be two viewpoints on how we got here. One is that the financial community drank their own debt is awesome kool-aid and are just bumbling their way through best they can--trying to put out fires as they start. The Fed likes to pretend like can do something, but they have lost control over the bond market.

Second is that the central banks have the best data out there, the brightest minds, and intentionally pulled the trigger. The amount of bonds and currency they have under control is enough to sufficiently influence the market at the margin.

I have no idea on which it is. But as a imaginative fella I like to speculate on the latter. And I try to speculate--why would they?

Sometimes I think--wouldn't a controlled deflationary environment be a good way to mask ever higher raw material costs by slowly reducing nominal prices of everything?

Either way, I feel its questionable whether they can succeed. Under scenario #1 they are just wingin' it. That doesn't help me sleep at night.

Scenario #2 means they know about these problems, have a game plan, and are attempting to execute but still there are those "black swans" that arise--the "unknown unknowns" they are unable to plan for. Adding these to a weak system could break it down.

Of course, the connected benefit greatly by being in the know and the poor suffer more than they already are.

Ilargi, you say: Predictably, the decrease in oil supply, and the resulting price hikes, lead to a vast increase in stupid analyses by "experts". Without the US invasion of Iraq oil would be $40 a barrel. Or so claims this economist. Of course he doesn’t know that, he has no proof of it, but that doesn’t matter.

Hi ilagi, don't generally disagree with your assements, but I don't understand why you are reacting so strongly to this 40 buck a barrel article. Several attempts were made by Saddam's Iraq to come to an agreement with the US about that rather genocidal embargo. I would only guess that the oil that might have come from Iraq under an agreement would have reduced the price of oil today quite radically, just imagine what adding maybe another 5 million plus barrels a day right now to our current supply would do. Maybe not reduce it to 40 but I would sure be placing money on it going to the 60's.

Other than possibly a bit of exaggeration, I don't find all that much of a problem here, maybe you could elaborate on your view point?

Not sure I know what you mean to say. Even if you believe, and that is religion, not knowledge, that a non-invasion of Iraq would have led to oil prices 60-70-80% below what they are now, there is no proof.

But this guy is one more doofus who claims to know, though he knows very well he doesn't know, and is believed because he is presented, by a reporter who should know better, as an expert and/or has a degree in whatever.

My vote is for scenario #1 (although Ilargi would disagree with me). A trader who was once asked who he would like to be reincarnated as if such a thing were possible, answered "The bond market - then I could boss everyone around." The bond market represents the power of the collective, and my view is that the collective is far stronger than central bankers.

The problem with the idea of a controlled deflationary environment is that deflation NEVER unfolds in a controlled way. When a highly leveraged system finally implodes, it does so quickly and is unstoppable (like Enron). Right now I would say we are teetering somewhere near the brink - in the early stages of contraction but not yet at the critical mass we would need for a crash.

I think the recent rally is over, and, although there may be smaller counter-trend bounces, there shouldn't be another large rally like that for some time IMO. The larger trend therefore appears to have resumed, which means we should see the next phase of the credit crunch emerging, with the inevitable shift from greed to fear. Those who are currently patting the Fed on the back for a job well done will probably be reconsidering shortly.

Regarding central bank swaps, you ask what would sweeten the deal. Perhaps nothing is required at all, aside from the knowledge that they have created a monstrosity so huge that they will all go down together if it fails. And thus this extra action, to further obfuscate the real depths of the problem.

Indeed, if they could pass this "debt" around the world like a hot potato in a banking circle jerk, they would if they thought it would help them survive. We are now down to anything and everything possible to try to survive, on the part of the banks.

When the banks fail, it will then be upon each of us as individuals. I do not believe that the world will go quietly into depression this time, as it did before. There is too much potential for violence at every level, far more so that in the 1920s. Couple that with the despair of the younger generation versus the hope held by the generation of the 1920s, and the social climate is remarkably different this time.

And by the way, I still think this entire crash is going to drag out perhaps longer than most believe.

“Without the US invasion of Iraq oil would be $40 a barrel. Or so claims this economist.”

So just assume Iraq’s pre-invasion oil production, project growth in world demand, adjust for effect of earth’s rotation, wind drift and a lack of an ‘r’ in the month, find its inverse twice finally to extrapolate what the price should be …naw.

kypat, Your first explanation I think is the simpler so likelier to be correct as it gives to the rich and then off loads to the rest of us. In the second I would ask you how would they orchestrate an international conspiracy so as to end with that controlled deflation? ( Let me know if I am being dense and have missed your point there)

About the value of 'brightest minds' ... have you looked at what a lot of the brightest thought about items like global warming back in 1980's or even 90's ... should I venture, even in the 2000's?

Well that's two people I have disagreed with today, I think I should go talk to my ducks for a bit ... can't disagree with something that just goes "quack":)

(This above should have been posted just after the post to iligri but I must have hit the wrong button.) ---------------

Iligri, while I am still here, I will just echo your thoughts in your statement to me:Not sure I know what you mean to say. and will just reply by saying that I believe I will awake tomorrow morning and am functioning with that belief in mind. Maybe that is a bogus attitude or idea to have or hold but it does keep me boogying on.If we have no suppositions whereon will we sup? You could say that if we had the mentality of ducks we would be further ahead as it is doubtful they have beliefs they just blissfully do their thing. But then from my belief platform I think: Who wants to have a mentality that has one sticking ones beak in mud and going "Quack" when they get a good slug? So until someone invents a better platform to work from I will use belief. Right now I believe that a combination of a faltering economy and peak energy will produce one big bad and continuing happening. But since this is really only belief I will allow myself any correction there that is necessary as long as they can come up with a belief platformthat better suits whatever facts that are available.

I don't agree on 1: There is no logical reason that I can see for foreign central banks to trade treasuries for GSE paper unless there are juicy incentives. Or the Fed has plans to do something awful to treasuries. But that is speculation.

I agree very much on 2: The psychological implications of the downfall are very poorly understood. The human mind works in one direction only.

Take away enough of what is familiar, and it falls apart. The sense of entitlement that exists in the western world will lead to a lot of gratuitous bloodshed.

I got that hammered home once more a while back watching The Wargame, a banned 1965 BBC documentary.

And I don't really agree on 3: Slow motion has always disagreed with me intuitively. I got to understand why when reading Shock Doctrine last year. The plug will be pulled in one fell swoop.

What we see to date is nothing. That's why I post the Depression photos: they are our foreland, we are those people, those of us who are lucky.

I don't really know if its #1 or #2so don't feel bad you can't really disagree with me since I am not really set on any answer. I'm just trying to learn more because its fun and I like it and if the world is going to hell in a hand basket I might as well have some fun while I try and prepare best I can.

On #2 I just like to imagine what they are doing if indeed it is so.

I'm not saying its any type of conspiracy, I'm just saying it could be manipulation of fiat paper to try to move the herd where they would like it to move.

I mean look at this housing mess--part of the reason prices went to the stratosphere was keeping rates down at 1% for so long.

If you want people to borrow more then lower rates--moves money in one direction which increases debt and increases nominal prices. Not a conspiracy--just using a monetary bullwhip to move the herd in a certain direction.

Now Japan had a long drawn out controlled deflation which definitely slowed the economy and consumption.

So maybe the bankers saw peak oil on the horizon (sure seem like GWB and Cheney did) and since the US consumes too much, especially oil, lets fan the flames for a housing bubble in the US like Japan had and when it pops break their economy (particularly wasteful suburban housing) and reduce consumption.

Now that the piggy US consumer is slimmed down this makes resources more affordable for the other important countries--like the Asian countries and they pay back the favor by using up some of their worthless foreign reserves to keep the whole ship from going completely boom.

So the rich countries keep the system still functioning which is great for the global elite since they benefit the most from the system.

Poor people and poor countries? Well you got to break a few eggs to make a omelet.

Again, this is just my wild and crazy speculation for fun. I really have no idea.

In fact, I tend to lean towards Stoneleigh's position--the depth of human stupidity never ceases to amaze me.

Most days I think the central bankers are just like seat belts on an airplane. They are there to make the passengers feel safe but in reality they can't save your butt if the plane is going down.

Hi kyput, Here is something from Noam Chompsky about US involvement in oil, I would think that the US administration is and has been very well aware of the value of oil in more ways than I imagine we will ever be, peak oil would be nothing new under their sun and by implication under those bankers' sun.

And Venezuela -- enormous wealth -- was taken over by the United States around 1920, right at the beginning of the oil age, It had been a British dependency, but Woodrow Wilson kicked the British out, recognizing that control of oil was going to be important, and supported a vicious dictator.

"There is no logical reason that I can see for foreign central banks to trade treasuries for GSE paper unless there are juicy incentives. Or the Fed has plans to do something awful to treasuries. But that is speculation."

Suppose there is a great big stupid bailout of GSEs in the wind? A Resolution Trust. Imagine Congress passes a law EXPLICITLY guranteeing GSE paper, and sets up a trust to take over defaulted mortages and let the defaultees rent their former home at nominal rents.

The exact details of the scheme don't matter, as long as it is big, populist, hideously expensive and makes any thinking person shudder.

In that case Treasuries would go down, as the US taxpayer has just been handed the bag for trillions. But GSE paper in now backed by the full faith of the USA, so its price should converge on that of Treasuries.

Anyone who had previously swapped Treasuries for GSE paper would then be a winner, right?

"Anyone who had previously swapped Treasuries for GSE paper would then be a winner, right?"

You may be right in terms of the relative value between treasuries and GSE paper, but the USD would take such a huge hit that it would be a terrible investment relative to any other method of storing value.